12/12/2007 @ 6:00AM

Delighting The Newly Empowered Consumer

Where once consumers could choose between candy bars or granola bars, we now have several hundred highly specialized power bars. Where once we could choose among chocolate, vanilla, strawberry, or an additional flavor or two of supermarket ice cream, we now have hundreds of options of premium, super-premium, and even hyper-premium ice creams in our supermarkets. Where once all bank credit cards where identical, we now have tens of thousands of interest rates, grace periods, reward points programs, free shipping if used at specific retailers, or cash back refunds based on use.

All this is different from trading up and the pursuit of luxury. While none of the new offerings is better in any absolute sense, each is different, and each has a segment of consumers who believe that the beer is better for them. So each commands a loyal following and a premium price. This is not trading up, but trading out.

“Resonance marketing” entails learning what the consumer wants, understanding how the consumer learns about it and evaluates it, and then guiding the company’s hyperdifferentiation to develop the most profitable portfolio of offerings.

Perhaps the greatest factor inhibiting corporations’ ability to prepare for and to implement resonance marketing is their limited understanding of why consumer behavior has changed over time.

Until firms understand what drives consumers to ever widening variations in their product selection, they have no chance of determining what to offer them. They will cling to mass marketing and seek to satisfy the greatest number of consumers with high-quality products of adequate fit. They will continue to be good enough for everyone–and will be abandoned, one segment at a time, as their customers find products that are not just good, but great for them.

Consumer behavior has certainly changed; this is obvious just by looking at the traffic in today’s supermarkets and observing the sales of non-traditional products like prepared foods, bagged coffee rather than canned, gourmet cheeses and breads rather than Kraft and Wonder Bread. Consumers’ fundamental preferences may have changed; more significantly, their ability to satisfy their preferences has changed more rapidly. They can find what they want.

Through an endless number of sources, mostly“word of mouse,” consumers just know more. We can compare prices, using search engines like BizRate or Orbitz. We can get product reviews, from professional sites like dpreview.com for cameras. We can get user-generated content from retailers like Amazon, from wide-ranging sites like reviewcentre.com,or from specialized sites in everything from travel with TripAdvisor.com to beer with RateBeer.com.

Of course, consumer behavior has changed. We know what everything is, we know where to find it, and we know exactly what it costs. This has changed corporate strategy because it has changed the relative rewards of simplifying operations and of catering to the specialized needs of different customers.

Consumers’ uncertainty about new offerings has historically impeded introduction. When we don’t know what we’re getting, we pay less for it. This is not due to simple fear of the unknown or risk aversion, but honest concern that what we are getting might not be what we want. The problem is that consumers are different; they have different preferences, and unfamiliar products may not fit an individual consumer’s preferences.

Worse yet, uncertainty only destroys the value of a product you expect, on average, to be right for you. If you think a designer’s shirt is perfect for you, it can’t be better than perfect–it can only be too big or too small, too heavy or too light. But it can’t be better than you expect.

Uncertainty where you are hoping for perfection means that when you assess the expected value of a product, you have to average in the chance that it is significantly worse than you expect. This is not offset by the chance that it is better than perfect.

Moreover, the impact of uncertainty is greatest on customers who are willing to pay the most for perfection. A consumer who would be willing to pay $48 for a perfect case of beer, or $200 for a perfect bottle of cabernet, or $400 for a night in a hotel, is much more demanding than a customer for Budweiser or Paul Masson wines or a guest at a Holiday Inn.

Historically, the uncertainty discount was the greatest advantage an established manufacturer and an established brand enjoyed.

Informedness has changed consumer behavior. With perfect information, the competition discount is as large as it has ever been–the price of coach air travel, due to systems like Orbitz, has never been lower. Likewise, the compromise discount has never been greater: While GM makes wonderful, high-quality cars, consumers feel no special excitement for most of them, and sales, prices and profits are all suffering.

But the greatest impact has been on the uncertainty discount. In many consumer categories, like soft drinks, coffee or ice cream, traditional offerings have no growth; all the sales growth and all of the profits now come from new premium and super-premium offerings.

Most companies want to change their strategies; indeed, they need to do so. Fortunately, most can. Recognizing a market “sweet spot” requires different skills than recognizing a “fat spot.” At a focus group for a fat spot offering, for example, you want to see as many customers as possible wholike your product. In contrast, for sweet-spot marketing, customers who merely like your product are no different from customers who hate it, since neither will pay a premium, sweet-spot price for it!

With a sweet-spot strategy, only customers who love your product are of use to you, and you really don’t care how many hate it, as long as you and they know why they hate it. You might find a few products that everyone merely likes, and you actually now need to avoid those. In sweet spot marketing, a large number of customers who hate your product may be a good leading indicator of success, if they are accompanied by a few enthusiastic fans.

Retailers need deeper understanding of their customers’ behavior. Anyone can sell Kraft cheddar over and over, giving the consumer $1 discount coupons. The trick is identifying“latent cheesies,” who, once they sample select commune Roquefort or imported aged Gouda, will buy it again and again. Information on what consumers will pay for staples is less interesting than knowing what they would have paid for new offerings–and knowing how to inform them about these new offerings.

In conclusion, in the world of the newly informed, newly empowered consumer, your best strategy is no longer to hug the formerly safe middle. Johnny Mercer may have said it best: